Labour’s budget reveals a government still trapped in short-termism |
Labour’s latest autumn budget, delivered with much fanfare by Chancellor Rachel Reeves, may have seemed at first glance a careful balancing act of fiscal prudence and social responsibility. Yet, upon closer inspection, it exposes a government still caught in the shackles of short-termism, reacting to market pressures and political optics rather than pursuing a bold, transformative vision for the UK economy.
Halloween may have been weeks behind us, but one ghost seemed to hover over the budget: the spectre of the bond markets. In her Commons speech, Reeves repeatedly referenced Liz Truss’s disastrous 2022 mini-budget as a cautionary tale, emphasizing the fragility of market confidence. The media and commentators quickly echoed this narrative, framing the budget largely in terms of bond market reactions, as though a government’s health could be measured solely by the willingness of investors to buy its debt.
The problem with this approach lies in its fundamental analogy: governments are not households. The received wisdom-repeated ad nauseam since Truss’s brief tenure-suggests that governments must balance their books like a careful homeowner or risk economic collapse. The notion that overspending inevitably triggers financial ruin may be intuitive, but it is misleading. Unlike a household, the state has tools far beyond its tax revenue to manage borrowing and spending, including influence over the Bank of England and long-term economic planning.
The Treasury’s fiscal choices both shape and are shaped by the bond market and the Bank of England. Yet discussions of “market discipline” often ignore the political and strategic nature of the central bank’s decisions. Interest rates, the purchase or sale of government bonds, and other monetary policy tools are not governed by immutable economic laws; they are choices made in response to economic circumstances, priorities, and political pressures. For instance, the UK has chosen in recent years to rely heavily on monetary policy-raising interest rates to combat inflation-rather than employing a more comprehensive toolkit that could include price controls, targeted interventions in supply chains, and measures to reduce concentrated market power. These alternatives would tackle the root causes of rising prices more directly, illustrating that the government has more levers at its disposal than it often acknowledges.
Nevertheless, Labour has opted to structure its fiscal framework around rigid self-imposed rules. These rules-designed to ensure that within five years........